The locust beaters

Brokers say the Ministry of Justice’s new powers to fine rogue claims management firms are long overdue and will hopefully free up time spent dealing with spurious claims.

Under current regulations, the MoJ can only take enforcement action against companies with substandard practices.

But a new power included in an amendment to the Financial Services Bill will allow the MoJ to impose large fines on claims firms which use information gathered through unsolicited calls or which provide poor quality services.

The MoJ will also consult on a new set of toughened conduct rules for its claims management regulation unit, and on an increase in fees for regulated firms.

The increase in fees will be used to fund the recruitment of additional enforcement staff at the unit. A spokesman for the MoJ says it currently employs around 80 enforcement staff, and plans to increase this to more than 100 by the end of the year.

The MoJ is also planning on placing a duty on claims management companies to ensure claims submitted have a realistic chance of success as well as providing substantiating evidence.

These companies will also have to carry out thorough audits of how the data used has been gathered to prevent the use of leads generated through illegal marketing calls and text messages.

The MoJ says issuing fines will be “an important new weapon” in taking action against claims firms that break the rules.

Highclere Financial Services partner Alan Lakey knows the pain of dealing with spurious claims all too well. Last month Highclere won a case through the small claims court after contesting a payment protection insurance misselling claim from claims firm Aims Reclaim.

Aims Reclaim wrote to Highclere in April alleging the firm had missold a client PPI. It stated seven reasons why the policy was missold, including “your sales person did not tell our client that the policy was optional”.

Lakey says he has never arranged PPI and that the client in question says she did not make a claim against him to Aims Reclaim.

He was awarded £340, made up of £100 for Aims Reclaim wasting his time, and £240.20 in legal costs.

Writing for Money Marketing online last week, Lakey said: “Claims firms are akin to the biblical plague of locusts. The antics and creativity of claims firms continue to astound me.

Brokers say the MoJ’s new powers should save a lot of unnecessary stress.

John Charcol senior technical manager Ray Boulger says: “If this curtails some of the worst abuses in the CMC sector, that clearly will be helpful to brokers in terms of not having to deal with these spurious claims.

“The effect will be that brokers should have less instances where they are having to deal with these ambulance-chasers. This is not before its time.”

But he adds: “If the Ministry of Justice had been more pro-active, it would have put a stop to this before it all got to this stage.”

Perception Finance managing director David Sheppard says the trouble with claims firms is they encourage clients to submit misselling claims even where they did not previously have a complaint about the advice given.

Sheppard says: “People get sold the idea that they have been missold something based on someone else telling them that, rather than genuinely believing the advice was unsuitable.

“That for me is the danger of these types of companies, in that they are encouraging people to take action where none should be taken.”

He adds: “There needs to be fines and heavy treatment of any claims firm that steps out of line. If a firm receives a hefty fine and continues to behave in a way that is seen as inappropriate, they need to be shut down.”

Trinity Financial product and communications manager Aaron Strutt says his firm has received calls from claims firms, and says once you start hearing from them it is “frustratingly difficult” to put a stop to it.

He says: “It is good news the MoJ has more powers to tackle the issue, but it might be quite hard to target all of them.

“I imagine the regulator will have to impose some large fines to send out a sufficient warning to other companies that they will need to start cleaning up their act.”

Association of Mortgage Intermediaries chief executive Robert Sinclair welcomes the MoJ’s recognition that more needs to be done to tackle rogue claims firms.

But he ultimately believes it should be the FCA, rather than the MoJ, that should regulate claims firms as the FCA has the necessary staff resources to address what is undoubtedly a huge problem.

Sinclair says: “The MoJ is still struggling to provide the people capacity that is needed to deal with the poor conduct we see from some claims firms.

“There are some claims firms that are better than others, but there are still far too many firms fishing in some very strange ponds and trying to create complaints that do not legitimately exist in the first place.”

On the issue of fines, Sinclair says experience with the FCA shows fines can be quite significant.

But he adds: “The way claims firms are regulated does not extend to holding sufficient capital. Therefore, the money may have gone out of the firm before any fine arrives. We are concerned that while the MoJ can levy fines, will there be enough money to meet large fines, and if not, that means there will be less money to invest in enforcement.”

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Comments

No explanation has ever been offered as to why in the first place the FSA shucked off onto the MoJ responsibility for regulating these parasites. My guess is that it was because if the FSA had taken it on, it would have placed it in the uncomfortable position of having one foot hard down on the gas pedal of pursuing its prejudicial agenda against small IFA’s with other supposedly on the brake pedal. All the evidence tells us that the MoJ is either ill-equipped to do the job or that it’s not competent to do so. Sure, it produces pages and pages of rules and regulations but the CMC’s largely ignore them. I still receive at least a couple of unsolicited calls every week, on my home phone, on both my office phones and on my mobile from somebody trying to persuade me to claim for the mis-sale of something I never bought.

That aside, the proper regulation of and enforcement of rule breaches against CMC’s is just one item on a very long list of matters overdue in the regulatory world. Much of this stems from the regulators still having free rein to set, prioritise and pursue their own agendas without being answerable to any outside authority. Hence the endless string of regulatory oversights and resulting motorway pile-ups. All regulatory agendas should be subject to the imprimatur of an Independent Regulatory Oversight Committee with the unassailable authority to say to the regulator either:-

1. This is wrong and you aren’t going to do it or

2. This is wrong and you’re going to have to put it right or

3. This is a lesser priority than that, so you’re going to have to do that first and not this.

It’s called proper regulatory governance and is sadly (and so often disastrously) lacking.